##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION  Washington, D.C. 20549
 FORM 10-Q (Mark One)[x]
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the quarterly period ended June 30, 2004 or[  ]
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 Commission File Number: 000-24799 THE CORPORATE EXECUTIVE BOARD COMPANY  Delaware
            (State or Other Jurisdiction of
            Incorporation or Organization)
          2000 Pennsylvania Avenue, NW
            Suite 6000
            Washington, D.C.
            (Address of Principal Executive Offices)
    
    52-2056410
            (I.R.S. Employer
            Identification Number)
          20006
            (Zip Code)
 (202) 777-5000
(Registrants Telephone Number, Including Area Code) Not applicable.
(Former Name, Former Address and Former Fiscal Year, if Changed, Since Last Report.) Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [x]     No [  ] Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [x]     No [  ] Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practicable date. As of July 23, 2004, we had outstanding 39,029,438 shares of Common Stock, par
value $0.01 per share, and had outstanding no shares of Preferred Stock, par
value $0.01 per share.




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##### 



THE CORPORATE EXECUTIVE BOARD COMPANY
INDEX TO FORM 10-Q PART I. FINANCIAL INFORMATIONItem 1. Financial Statements.Condensed Consolidated Balance Sheets at June 30, 2004 and December 31, 2003
    
    
    3Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2004 and 2003
    
    
    4Condensed Consolidated Statements of Cash Flows for the Three and Six Months Ended June 30, 2004 and 2003
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
    
    
    9Item 3. Quantitative and Qualitative Disclosures About Market Risk.
    
    
    12Item 4. Controls and Procedures.
    
    
    12PART II. OTHER INFORMATIONItem 1. Legal Proceedings.
    
    
    13Item 2. Change in Securities, Use of Proceed and Issuer Purchases of Equity Securities.
    
    
    13Item 3. Defaults Upon Senior Securities.
    
    
    13Item 4. Submission of Matters to a Vote of Security Holders.
    
    
    13Item 5. Other Information.
    
    
    13Item 6. Exhibits and Reports on Form 8-K.
    
    
    14
 2




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##### 



PART I. FINANCIAL INFORMATION Item 1. Financial Statements. THE CORPORATE EXECUTIVE BOARD COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts) June 30, 2004
    
    December 31, 2003(Unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    159,420
    
    
    $
    118,568Marketable securities
    
    
    45,505
    
    
    
    11,859Membership fees receivable, net
    
    
    43,382
    
    
    
    63,160Deferred income taxes, net
    
    
    34,984
    
    
    
    30,972Deferred incentive compensation
    
    
    6,389
    
    
    
    7,332Prepaid expenses and other current assets
    
    
    8,843
    
    
    
    5,933Total current assets
    
    
    298,523
    
    
    
    237,824Deferred income taxes, net
    
    
    7,923
    
    
    
    6,701Marketable securities
    
    
    163,810
    
    
    
    163,492Property and equipment, net
    
    
    18,132
    
    
    
    15,465Total assets
    
    $
    488,388
    
    
    $
    423,482Liabilities and stockholders equityCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    15,580
    
    
    $
    12,480Accrued incentive compensation
    
    
    9,348
    
    
    
    11,072Deferred revenues
    
    
    150,658
    
    
    
    154,844Total current liabilities
    
    
    175,586
    
    
    
    178,396Other liabilities
    
    
    3,089
    
    
    
    3,093Total liabilities
    
    
    178,675
    
    
    
    181,489Stockholders equity:Preferred stock, par value $0.01; 5,000,000 shares
authorized, no shares issued and outstanding
    
    
    
    
    
    
    Common stock, par value $0.01; 100,000,000 shares
authorized and 39,967,106 and 37,835,075 shares issued,
and 39,023,333 and 37,283,068 shares outstanding as of
June 30, 2004 and December 31, 2003, respectively
    
    
    400
    
    
    
    378Additional paid-in capital
    
    
    214,164
    
    
    
    143,426Retained earnings
    
    
    132,520
    
    
    
    113,532Accumulated elements of comprehensive income
    
    
    980
    
    
    
    4,277Treasury stock, 943,773 and 552,007 shares, at cost, at
June 30, 2004 and December 31, 2003, respectively
    
    
    (38,351
    )
    
    
    (19,620
    )Total stockholders equity
    
    
    309,713
    
    
    
    241,993Total liabilities and stockholders equity
    
    $
    488,388
    
    
    $
    423,482
 See accompanying notes to condensed financial statements. 3




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THE CORPORATE EXECUTIVE BOARD COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited) Three months ended June 30,
    
    Six months ended June 30,2004
    
    2003
    
    2004
    
    2003Revenues
    
    $
    67,198
    
    
    $
    50,339
    
    
    $
    131,177
    
    
    $
    97,622Cost of services
    
    
    22,232
    
    
    
    17,037
    
    
    
    43,632
    
    
    
    33,155Gross profit
    
    
    44,966
    
    
    
    33,302
    
    
    
    87,545
    
    
    
    64,467Costs and expenses:Member relations and marketing
    
    
    18,563
    
    
    
    12,965
    
    
    
    36,444
    
    
    
    25,352General and administrative
    
    
    7,739
    
    
    
    5,166
    
    
    
    14,977
    
    
    
    10,496Depreciation
    
    
    1,592
    
    
    
    1,393
    
    
    
    3,340
    
    
    
    2,749Stock option and related expenses (1)
    
    
    408
    
    
    
    2
    
    
    
    408
    
    
    
    113Total costs and expenses
    
    
    28,302
    
    
    
    19,526
    
    
    
    55,169
    
    
    
    38,710Income from operations
    
    
    16,664
    
    
    
    13,776
    
    
    
    32,376
    
    
    
    25,757Other income, net
    
    
    2,341
    
    
    
    1,880
    
    
    
    4,509
    
    
    
    3,655Income before provision for income taxes
    
    
    19,005
    
    
    
    15,656
    
    
    
    36,885
    
    
    
    29,412Provision for income taxes
    
    
    6,272
    
    
    
    6,169
    
    
    
    12,172
    
    
    
    11,589Net income
    
    $
    12,733
    
    
    $
    9,487
    
    
    $
    24,713
    
    
    $
    17,823Earnings per share:Basic
    
    $
    0.33
    
    
    $
    0.25
    
    
    $
    0.66
    
    
    $
    0.48Diluted
    
    $
    0.32
    
    
    $
    0.25
    
    
    $
    0.63
    
    
    $
    0.47Dividends per share
    
    $
    0.075
    
    
    
    
    
    
    $
    0.15
    
    
    $
    Weighted average shares used in the calculation of earnings per share:Basic
    
    
    38,151
    
    
    
    37,372
    
    
    
    37,697
    
    
    
    37,298Diluted
    
    
    39,684
    
    
    
    38,415
    
    
    
    39,301
    
    
    
    38,146(1)   Composition of Stock option and related expenses:Cost of services
    
    $
    184
    
    
    $
    
    
    
    $
    184
    
    
    $
    74Member relations and marketing
    
    
    100
    
    
    
    2
    
    
    
    100
    
    
    
    5General and administrative
    
    
    124
    
    
    
    
    
    
    
    124
    
    
    
    34Total
    
    $
    408
    
    
    $
    2
    
    
    $
    408
    
    
    $
    113
 See accompanying notes to condensed financial statements. 4




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THE CORPORATE EXECUTIVE BOARD COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited) Six months endedJune 30,2004
    
    2003CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    24,713
    
    
    $
    17,823Adjustments to reconcile net income to net cash flows provided by operating
activities:Depreciation
    
    
    3,340
    
    
    
    2,749Deferred income taxes
    
    
    11,388
    
    
    
    11,468Amortization of marketable securities premiums, net
    
    
    1,460
    
    
    
    870Changes in operating assets and liabilities:Membership fees receivable, net
    
    
    19,778
    
    
    
    22,326Deferred incentive compensation
    
    
    943
    
    
    
    256Prepaid expenses and other current assets
    
    
    (2,910
    )
    
    
    (2,697
    )Accounts payable and accrued liabilities
    
    
    2,996
    
    
    
    (3,006
    )Accrued incentive compensation
    
    
    (1,724
    )
    
    
    (3,675
    )Deferred revenues
    
    
    (4,186
    )
    
    
    (10,052
    )Other liabilities
    
    
    4
    
    
    
    245Net cash flows provided by operating activities
    
    
    55,802
    
    
    
    36,307CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property and equipment, net
    
    
    (6,007
    )
    
    
    (3,172
    )Maturities and sales (purchases) of marketable securities, net
    
    
    (40,184
    )
    
    
    (56,200
    )Net cash flows used in investing activities
    
    
    (46,191
    )
    
    
    (59,372
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from the exercise of common stock options
    
    
    55,175
    
    
    
    7,842Proceeds from the issuance of common stock under the employee stock
purchase plan
    
    
    418
    
    
    
    338Purchase of treasury shares
    
    
    (18,731
    )
    
    
    (14,797
    )Payment of dividends
    
    
    (5,725
    )
    
    
    Reimbursement of common stock offering costs
    
    
    225
    
    
    
    175Payment of common stock offering costs
    
    
    (121
    )
    
    
    (159
    )Net cash flows provided by (used in) financing activities
    
    
    31,241
    
    
    
    (6,601
    )NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    40,852
    
    
    
    (29,666
    )Cash and cash equivalents, beginning of period
    
    
    118,568
    
    
    
    71,346Cash and cash equivalents, end of period
    
    $
    159,420
    
    
    $
    41,680
 See accompanying notes to condensed financial statements. 5




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THE CORPORATE EXECUTIVE BOARD COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 1  Description of operations The Corporate Executive Board Company (the Company) provides best
practices research, decision support tools and executive education focusing on
corporate strategy, operations and general management issues. Best practices
research supports senior executive decision making by identifying and analyzing
specific management initiatives, processes and strategies that have been
determined to produce the best results in solving common business problems or
challenges. For a fixed annual fee, members of each of its research programs
have access to an integrated set of services, including best practices research
studies, executive education seminars, customized research briefs and Web-based
access to the programs content database and decision support tools. Note 2  Condensed consolidated financial statements The accompanying condensed unaudited consolidated financial statements
included herein have been prepared by us in accordance with accounting
principles generally accepted in the United States for interim financial
information and pursuant to the rules and regulations of the Securities and
Exchange Commission (the SEC) for reporting on Form 10-Q. Accordingly,
certain information and footnote disclosures required for complete consolidated
financial statements are not included herein. It is recommended that these
condensed consolidated financial statements be read in conjunction with the
consolidated financial statements and related notes as reported on the
Companys Form 10-K filed with the SEC on March 3, 2004. In managements opinion, all adjustments, consisting of normal recurring
adjustments, considered necessary for a fair presentation of the condensed
consolidated financial position, results of operations, and cash flows at the
dates and for the periods presented have been included. The condensed
consolidated balance sheet presented as of December 31, 2003 has been derived
from the financial statements that have been audited by the Companys
independent auditors. The results of operations for the three and six months
ended June 30, 2004, may not be indicative of the results that may be expected
for the year ending December 31, 2004, or any other period within calendar year
2004. Note 3  Public offerings of common stock In May 2004 and March 2003, certain of the Companys shareholders agreed
to sell 1.9 million and 588,000 shares of its common stock, respectively, in
registered public offerings. The Company did not directly receive any proceeds
from the sale of its common stock pursuant to these registered public
offerings. However, it did receive cash from the exercise of common stock
options in conjunction with these registered public offerings. In addition, the
Company recognized $408,000 and $83,000 in compensation expense reflecting
additional Federal Insurance Corporation Act (FICA) taxes as a result of the
taxable income that the employees recognized upon the exercise of non-qualified
common stock options in conjunction with the registered public offering in
May 2004 and March 2003, respectively. The additional FICA taxes are included
within Stock option and related expenses in the condensed consolidated
statements of income for the three and six months ended June 30, 2004 and 2003. Note 4  Earnings per share Basic earnings per share was computed by dividing net income by the number
of basic weighted average common shares outstanding during the period. Diluted
earnings per share was computed by dividing net income by the number of diluted
weighted average common shares outstanding during the period. The number of
weighted average common share equivalents outstanding has been determined in
accordance with the treasury stock method. Common share equivalents consist of
common shares issuable upon the exercise of outstanding common stock options. A
reconciliation of basic to diluted weighted average common shares outstanding
is as follows (in thousands): Three months
    
    Six monthsended June 30,
    
    ended June 30,2004
    
    2003
    
    2004
    
    2003Basic weighted average common shares outstanding
    
    
    38,151
    
    
    
    37,372
    
    
    
    37,697
    
    
    
    37,298Weighted average common share equivalents outstanding
    
    
    1,533
    
    
    
    1,043
    
    
    
    1,604
    
    
    
    848Diluted weighted average common shares outstanding
    
    
    39,684
    
    
    
    38,415
    
    
    
    39,301
    
    
    
    38,146
 6




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Note 5  Comprehensive income Comprehensive income is defined as net income plus the net-of-tax impact
of foreign currency items, minimum pension liability adjustments, and
unrealized gains and losses on certain investments in debt and equity
securities. Comprehensive income for the three months ended June 30, 2004 and
2003 was $8.4 million and $10.4 million, respectively. Comprehensive income
for the six months ended June 30, 2004 and 2003 was
$21.4 million and $18.3 million, respectively. The accumulated elements of
comprehensive income, net of tax, included within stockholders equity on the
condensed consolidated balance sheets are comprised primarily of the change in
unrealized gains (losses) on available-for-sale marketable securities. Note 6  Supplemental cash flows disclosures For
the six months ended June 30, 2004 and 2003, the Company
recognized $15.2 million and $4.5 million, respectively, in
stockholders equity for tax deductions associated with the exercise of
non-qualified common stock options and disqualifying dispositions of incentive
stock options. Estimated current income tax payments for the six months ended
June 30, 2004 and 2003 were $438,000 and $134,000, respectively. Note 7  Stockholders equity In February 2003, the Companys Board of Directors authorized a share
repurchase of up to $75 million of the Companys common stock. Repurchases will
be made from time to time in open market and privately negotiated transactions
subject to market conditions. No minimum number of shares has been fixed. The
Company will fund its share repurchases with cash on hand and cash generated
from operations. As of June 30, 2004 and December 31, 2003, the Company has
repurchased 943,773 shares and 552,007 shares, respectively, of treasury stock
at a total cost of $38.4 million and $19.6 million, respectively. In February 2004, the Board of Directors declared a quarterly dividend of
$0.075 per share which was paid on March 31, 2004 to stockholders of record
at the close of business on March 10, 2004. In addition, in May 2004, the
Board of Directors declared a quarterly dividend of $0.075 per share which was
paid on June 30, 2004 to stockholders of record at the close of business on
June 15, 2004. For the six months ended June 30, 2004, the Company paid dividends to stockholders
of record totaling $5.7 million. The Company paid no cash
dividends prior to January 1, 2004. Note 8  Stock-based compensation At June 30, 2004, the Company had several stock-based employee
compensation plans. These plans provide for the granting of stock options and
restricted stock to employees and non-employee members of our Board of
Directors. The Company accounts for those plans using the intrinsic value
method of expense recognition and measurement prescribed by APB Opinion No. 25,
Accounting for Stock Issued to Employees,and related Interpretations
(collectively, APB No. 25). Accordingly, no stock-based compensation cost is
reflected in net income, as reported, as all stock options granted under the
Companys stock-based employee compensation plans have an exercise price equal
to the market value of the underlying common stock on the date of grant. FASB Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation(SFAS No. 123), as amended by FASB Statement No.
148, Accounting for Stock-Based Compensation Transition and Disclosure,
established an alternative method of expense recognition for stock-based
compensation awards to employees based on fair values. Pro forma information
regarding net income is required by SFAS No. 123, as amended, and has been
determined as if the Company had accounted for its employee stock options under
the fair value method as prescribed by SFAS No. 123, as amended. 7




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The following table illustrates the effect on net income and earnings per
share if the Company had applied the fair value recognition provisions of SFAS
No. 123 to stock-based employee compensation. For purposes of pro forma
disclosures, the estimated fair value of options is amortized to expense over
the vesting period. Three months
    
    Six monthsended June 30,
    
    ended June 30,2004
    
    2003
    
    2004
    
    2003Net income, as reported
    
    $
    12,733
    
    
    $
    9,487
    
    
    $
    24,713
    
    
    $
    17,823Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards, net
of related tax effects
    
    
    2,787
    
    
    
    4,101
    
    
    
    7,693
    
    
    
    7,941Pro forma net income
    
    $
    9,946
    
    
    $
    5,386
    
    
    $
    17,020
    
    
    $
    9,882Earnings per share:Basic  as reported
    
    $
    0.33
    
    
    $
    0.25
    
    
    $
    0.66
    
    
    $
    0.48Basic  pro forma
    
    $
    0.26
    
    
    $
    0.14
    
    
    $
    0.45
    
    
    $
    0.26Diluted  as reported
    
    $
    0.32
    
    
    $
    0.25
    
    
    $
    0.63
    
    
    $
    0.47Diluted  pro forma
    
    $
    0.25
    
    
    $
    0.14
    
    
    $
    0.44
    
    
    $
    0.26Assumptions:Risk-free interest rate
    
    
    3.9
    %
    
    
    2.6
    %
    
    
    3.5
    %
    
    
    2.7
    %Dividend yield
    
    
    0.5
    %
    
    zero
    
    
    0.6
    %
    
    zeroExpected life of option (in years)
    
    
    5
    
    
    
    5
    
    
    
    5
    
    
    
    5Expected volatility
    
    
    38
    %
    
    
    55
    %
    
    
    39
    %
    
    
    55
    %Weighted-average fair value of options granted
    
    
    
    
    
    $
    18.81
    
    
    $
    17.50
    
    
    $
    16.12
 Under the SFAS No. 123 pro forma disclosure provisions, the fair value of
options granted subsequent to December 15, 1995, has been estimated using the
Black-Scholes option valuation model. The Black-Scholes option valuation model
was developed for use in estimating the fair value of traded options that have
no vesting restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective assumptions, including
the expected stock price characteristics that are significantly different from
those of traded options. Because changes in the subjective input assumptions
can materially affect the fair value estimate, in managements opinion, the
existing models do not necessarily provide a reliable single measure of the
fair value of the Companys stock rights. Note 9  Income taxes -Washington,
    D.C. income tax incentives The Office of Tax and Revenue of the Government of the District of
Columbia (the Office of Tax and Revenue) has adopted regulations in
accordance with the New E-Conomy Transformation Act of 2000 (the Act) that
modify the income and franchise tax, sales and use tax and personal property
tax regulations, effective April 2001. Specifically, the regulations provide
certain credits, exemptions and other benefits to a Qualified High Technology
Company (QHTC). In October 2003, the Company received notification from the
Office of Tax and Revenue that its certification as a QHTC under the Act had
been accepted. As a QHTC, the Companys Washington, D.C. statutory income tax
rate will be 0.0% through 2005 and 6.0% thereafter, versus 9.975% prior to this
qualification, and the Company is also eligible for certain Washington, D.C.
income tax credits and other benefits. The Company
    filed a claim for refund of sales and use taxes previously paid to the Office
    of Tax and Revenue on qualifying QHTC purchases under the Act. In February 2004,
    the Company received a notice of refund denial for the claim. However, in
    May 2004, the Company received notification that the Office of Tax and
    Revenue has accepted the Companys position under the QHTC provisions
    of the Act and that the Company is entitled to receive a refund of sales and
    use taxes previously paid on eligible purchases. The outcome of this process
    is consistent with the position taken by the QHTC Activity Review Committee
    of the Office of Tax and Revenue, which accepted the Companys QHTC status
    in October 2003. Note 10  Subsequent events In July 2004, the Board of Directors declared a quarterly dividend of
$0.075 per share. The Company will fund its dividend payments with cash on hand
and cash generated from operations. The dividend is payable on September 30,
2004 to stockholders of record at the close of business on September 15, 2004. 8




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations. This Quarterly Report on Form 10-Q of The Corporate Executive Board
Company contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. You are hereby cautioned that these
statements may be affected by the important factors, among others, set forth
below and in our filings with the Securities and Exchange Commission, and
consequently, actual operations and results may differ materially from the
results discussed in the forward-looking statements. Factors that could cause
actual results to differ materially from those indicated by forward-looking
statements include, among others, our dependence on renewals of our
membership-based services, our inability to know in advance if new products
will be successful, difficulties we may experience in anticipating market
trends, our need to attract and retain a significant number of highly skilled
employees, restrictions on selling our products and services to the health care
industry, continued consolidation in the financial institutions industry, which
may limit our business with such companies, fluctuations in operating results,
our potential inability to protect our intellectual property rights, our
potential exposure to litigation related to the content of our products, our potential exposure
to loss of revenue resulting from our unconditional service guarantee, various
factors that could affect our estimated income tax rate or our ability to use
our existing deferred tax assets, whether the Washington, D.C. Office of Tax
and Revenue withdraws our QHTC status and possible volatility of our stock
price. These factors are discussed more fully in the Managements Discussion
and Analysis of Financial Condition and Results of Operations and Risk
Factors sections of our filings with the Securities and Exchange Commission,
including, but not limited to, its 2003 annual report on Form 10-K. Overview We provide best practices research and quantitative analysis focusing on
corporate strategy, operations and general management issues. Best practices
research supports senior executive decision making by identifying and analyzing
specific management initiatives, processes and strategies that have been
determined to produce the best results in solving common business problems or
challenges. For a fixed annual fee, members of each of our research programs
have access to an integrated set of services, including best practices research
studies, executive education seminars, customized research briefs and Web-based
access to the programs content database and decision support tools. Memberships, which are principally annually renewable agreements, are
generally payable by members at the beginning of the contract term. Billings
attributable to memberships in our research programs initially are recorded as
deferred revenues and then recognized pro rata over the membership contract
term, which is typically 12 months. At any time, a member may request a refund
of their membership fee for a research program, which is provided on a pro rata
basis relative to the remaining term of the membership. Our growth strategy is to cross-sell additional research programs to
existing members, to add new members and to develop new research programs and
decision support tools. The implementation of our growth strategy can be seen
in our operating results. One measure of our business is its annualized
Contract Value, which we calculate as the aggregate annualized revenue
attributed to all agreements in effect at a given point in time, without regard
to the remaining duration of any such agreement. Our experience has been that a
substantial portion of members renew subscriptions for an equal or higher level
each year. Contract Value has increased 32.1% to $255.5 million at June 30,
2004, from $193.4 million at June 30, 2003. Our operating costs and expenses consist of cost of services, member
relations and marketing, general and administrative expenses, depreciation, and
stock option and related expenses. Cost of services represents the costs
associated with the production and delivery of our products and services,
including compensation of research personnel and in-house faculty, the
production of published materials, the organization of executive education
seminars and all associated support services. Member relations and marketing
expenses include the costs of acquiring new members, the costs of maintaining
and renewing existing members, compensation expense (including sales
commissions), travel and all associated support services. General and
administrative expenses include the costs of human resources and recruiting,
finance and accounting, management information systems, facilities management,
new product development and other administrative functions. Stock option and
related expenses includes additional cash payroll taxes for compensation
expense relating to the taxable income recognized by employees upon the
exercise of non-qualified common stock options. 9




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##### 



Results of Operations The following table sets forth certain financial data as a percentage of
revenues for the periods indicated: Three months
    
    Six monthsended June 30,
    
    ended June 30,2004
    
    2003
    
    2004
    
    2003Revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of services
    
    
    33.1
    
    
    
    33.8
    
    
    
    33.3
    
    
    
    34.0Gross profit
    
    
    66.9
    
    
    
    66.2
    
    
    
    66.7
    
    
    
    66.0Costs and expenses:Member relations and marketing
    
    
    27.6
    
    
    
    25.8
    
    
    
    27.8
    
    
    
    26.0General and administrative
    
    
    11.5
    
    
    
    10.3
    
    
    
    11.4
    
    
    
    10.8Depreciation
    
    
    2.4
    
    
    
    2.8
    
    
    
    2.5
    
    
    
    2.8Stock option and related expenses
    
    
    0.6
    
    
    
    
    
    
    
    0.3
    
    
    
    0.1Total costs and expenses
    
    
    42.1
    
    
    
    38.8
    
    
    
    42.1
    
    
    
    39.7Income from operations
    
    
    24.8
    
    
    
    27.4
    
    
    
    24.7
    
    
    
    26.4Other income, net
    
    
    3.5
    
    
    
    3.7
    
    
    
    3.4
    
    
    
    3.7Income before provision for income taxes
    
    
    28.3
    
    
    
    31.1
    
    
    
    28.1
    
    
    
    30.1Provision for income taxes
    
    
    9.3
    
    
    
    12.3
    
    
    
    9.3
    
    
    
    11.9Net income
    
    
    18.9
    %
    
    
    18.8
    %
    
    
    18.8
    %
    
    
    18.3
    %
 Three and Six Months Ended June 30, 2004 and June 30, 2003 Revenues.Revenues increased 33.5% to $67.2 million for the three months
ended June 30, 2004, from $50.3 million for the three months ended June 30,
2003. Revenues increased 34.4% to $131.2 million for the six months ended June
30, 2004, from $97.6 million for the six months ended June 30, 2003. The
largest driver of the increase in revenues during the three and six months
ended June 30, 2004 was the cross-selling of additional subscriptions to
existing members. Other drivers contributing to the increase in revenues for
the three and six months ended June 30, 2004 included the introduction of new
research programs, price increases and the addition of new members. Cost of services.Cost of services increased 30.5% to $22.2 million for
the three months ended June 30, 2004, from $17.0 million for the three months
ended June 30, 2003. Cost of services increased 31.6% to $43.6 million for the
six months ended June 30, 2004, from $33.2 million for the six months ended
June 30, 2003. The increase in cost of services was principally due to
compensation costs for new research and executive education staff, an increase
in external consulting expenses to support existing programs and an increase in
travel costs due to an increase of executive education seminars. Cost of
services as a percentage of revenues decreased to 33.1% for the three months
ended June 30, 2004, from 33.8% for the three months ended June 30, 2003. Cost
of services as a percentage of revenues decreased to 33.3% for the six months
ended June 30, 2004, from 34.0% for the six months ended June 30, 2003. The
year-over-year changes in the cost of services as a percentage of revenue are
due to the leverage inherent in our membership-based business model and a shift
in the timing of our publishing and executive education seminar schedule
relative to the period ending June 30, 2003. Cost of services as a percentage
of revenues may fluctuate from quarter to quarter due to the timing of
executive education seminars, the timing of the completion and delivery of best
practices research studies and the introduction of new research programs.
Accordingly, the cost of services as a percentage of revenues for the three and
six months ended June 30, 2004 may not be indicative of future quarterly or
annual results. Gross profit.Historically, the gross profit as a percentage of revenues,
or gross profit margin, has fluctuated based upon the growth in revenues offset
by the costs of delivering best practices research studies, the timing of
executive education seminars, the volume of customized research briefs, the
hiring of personnel, and the introduction of new membership programs.
Accordingly, the gross profit margin for the three and six months ended June
30, 2004, may not be indicative of future results. A number of factors that
impact gross profit margin are discussed in the Cost of services description
above. Member relations and marketing.Member relations and marketing costs
increased 43.2% to $18.6 million for the three months ended June 30, 2004 from
$13.0 million for the three months ended June 30, 2003. Member relations and
marketing costs increased 43.8% to $36.4 million for the six months ended June
30, 2004 from $25.4 million for the six months ended June 30, 2003. The
year-over-year increase in member relations and marketing costs is due to an
increase in marketing travel expenses to support higher revenue activity,
commission expenses associated with increased revenue and, to a lesser extent,
an increase in member relations and marketing personnel and related costs.
Member relations and marketing costs as a percentage of revenues increased to
27.6% for the three months ended June 30, 2004, from 25.8% for the three months
ended June 30, 2003. Member relations and marketing costs as a percentage of
revenues increased to 27.8% for the six months ended June 30, 2004, from 26.0%
for the six months ended June 30, 2003. The year-over-year increase of the
three and six months ending June 30, 2004 is due primarily to the changes in
expenses in member relations and marketing noted above. 10




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General and administrative.General and administrative expenses increased
49.8% to $7.7 million for the three months ended June 30, 2004, from $5.2
million for the three months ended June 30, 2003. General and administrative
expenses increased 42.7% to $15.0 million for the six months ended June 30,
2004, from $10.5 million for the six months ended June 30, 2003. The increase
in general and administrative expenses is driven by an increase in staff and
related costs and the use of external financial, legal and information technology
consultants to support our organizational growth and our compliance with certain
regulatory requirements. In addition to these items, the increase in general
and administrative expenses during the six months ended June 30, 2004, as compared to
2003, is driven by one-time, lease termination costs associated with our move
to a new office facility within London, England, offset by decrease, as
compared to 2003, in recruiting costs by reducing our use of external search
firms.
General and administrative expenses as a percentage of revenues increased to
11.5% for the three months ended June 30, 2004, from 10.3% for the three months
ended June 30, 2003. General and administrative costs as a percentage of
revenues increased to 11.4% for the six months ended June 30, 2004, from 10.8%
for the six months ended June 30, 2003. Although a portion of our general and administrative expenses are fixed in nature,
our general and administrative expenses may continue to be higher as a
percentage of revenue for the balance
of calendar year 2004 as we incur additional financial, legal and information technology consultants to support our compliance
with certain regulatory requirements. The year-over-year increase of the
three and six months ending June 30, 2004 is due primarily to the changes in
expenses in general and administrative costs noted above. Depreciation.Depreciation expense increased 14.3% to $1.6 million for the
three months ended June 30, 2004, from $1.4 million for the three months ended
June 30, 2003. Depreciation expense increased 21.5% to $3.3 million for the six
months ended June 30, 2004, from $2.7 million for the six months ended June 30,
2003. The increase in depreciation expense was principally due to the
additional investment in leasehold improvements for additional office space in
Washington, D.C. and for the new office space in London, England and new
computer equipment and software to support organizational growth. Stock option and related expenses.We recognized $408,000 and $2,000 in
compensation expense for the three months ended June 30, 2004 and 2003,
respectively, reflecting additional FICA taxes as a result of the taxable
income that the employees recognized upon the exercise of non-qualified common
stock options, primarily in conjunction with the sale of our common stock in
the registered public offering in May 2004. We recognized $408,000 and $113,000
in compensation expense for the six months ended June 30, 2004 and 2003,
respectively, reflecting additional FICA taxes as a result of the taxable
income that the employees recognized upon the exercise of non-qualified common
stock options, primarily in conjunction with the sale of our common stock in
the registered public offering in May 2004 and March 2003. See further
discussion of the sale of our common stock in the registered public offerings
of common stock in theLiquidity and Capital Resources section below. Other income, net.Other income, net increased 24.5% to $2.3 million for
the three months ended June 30, 2004, from $1.9 million for the three months
ended June 30, 2003. Other income, net increased 23.4% to $4.5 million for the
six months ended June 30, 2004, from $3.7 million for the six months ended June
30, 2003. The growth in other income, net, was principally from interest income
associated with the increased levels of cash, cash equivalents and marketable
securities and the gain on the sale of available-for-sale marketable
securities. Cash, cash equivalents and marketable securities increased as a
result of cash flows from operating activities and cash flows from financing
activities as further discussed in the Liquidity and Capital Resources section
below. Provision for income taxes.We recorded a provision for income taxes of
$6.3 million and $6.2 million for the three months ended June 30, 2004 and
2003, respectively. We recorded a provision for income taxes of $12.2 million
and $11.6 million for the six months ended June 30, 2004 and 2003,
respectively. The decrease in our effective income tax rate to 33.0% for the
three and six months ended June 30, 2004 from 39.4% for the three and six
months ended June 30, 2003 primarily reflects the recognition of the credits,
exemptions and other tax benefits associated with our status as a Qualified
High Technology Company (QHTC) within Washington, D.C. In October 2003, we received notification from the Office of Tax and
Revenue that our certification as a QHTC had been accepted. As a QHTC, our
Washington, D.C. statutory income tax rate will be 0.0% through 2005 and 6.0%
thereafter, versus 9.975% prior to this qualification, and we are eligible for
certain Washington, D.C. income tax credits and other benefits. Accordingly, we
recorded a non-cash income tax charge to earnings of $8.2 million during the
third quarter ended September 30, 2003 for the impact on our deferred tax
assets of lowering the Washington, D.C. income tax rate to 0.0%, partially
offset by the recognition of certain Washington, D.C. income tax credits. We filed a claim for refund for sales and use taxes previously paid to the
Office of Tax and Revenue on qualifying QHTC purchases under the Act. We
subsequently received a notice of refund denial for the claim. However, in May
2004, we received notification that the Office of Tax and Revenue has accepted
our position under the QHTC provisions of the Act and that the Company is
entitled to receive a refund of sales and use taxes previously paid on eligible
purchases. The outcome of this process is consistent with the position taken by
the QHTC Activity Review Committee of the Office of Tax and Revenue, which
accepted the Companys QHTC status in October 2003. Liquidity and Capital Resources Cash flows from operating activities.We have financed our operations to
date through funds generated from operating activities. Membership
subscriptions, which are principally annually renewable agreements, are
generally payable by members at the beginning of the contract term. The
combination of revenue growth, profitable operations and advance payment of
membership subscriptions has historically resulted in net positive cash flows
provided by operating activities. We generated net cash flows from operating
activities of $55.8 million and $36.3 million for the six months ended June 30,
2004 and 2003, respectively. For the six months ended June 30, 2004 and 2003,
operating cash flows were generated within the period principally by net
income, the utilization of tax benefits created by the exercise of common stock
options, the collection of membership fees receivable, offset by the
increase in prepaid expenses and other
current assets and a decrease in accrued incentive compensation and deferred revenues. As of June 30, 2004, we had
cash, cash equivalents and marketable securities of $368.7 million. We expect
that our current cash, cash equivalents and marketable securities balances and
anticipated net positive cash flows from operations will satisfy working
capital, financing, and capital expenditure requirements for the next twelve
months. 11




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##### 



Cash flows from investing activities.We used net cash flows in investing
activities of $46.2 million and $59.4 million during the six months ended June
30, 2004 and 2003, respectively. During the six months ended June 30, 2004 we
purchased available-for-sale marketable securities, net, of $40.2 million and
purchased leasehold improvements for additional office space in Washington,
D.C. and London, England and computer equipment and software totaling $6.0
million. During the six months ended June 30, 2003 investing cash flows were
used for the
purchase, net of sales and maturities, of available-for-sale marketable
securities of $56.2 million and for the purchases of leasehold improvements for additional office space in
Washington, DC, computer equipment and software of $3.2 million. Cash flows from financing activities.We generated net cash flows from
financing activities of $31.2 million and used net cash flows from financing
activities of $6.6 million during the six months ended June 30, 2004 and 2003,
respectively. Net cash generated from financing activities during the six
months ending June 30, 2004 was primarily attributed to the receipt of $55.2
million in cash from the exercise of common stock options, primarily in
conjunction with the sale of 1.9 million shares of our common stock in a
registered public offering in May 2004, which was offset by the repurchase of our common
stock during the period, which totaled $18.7 million, and the payment of
dividends during the period, which totaled $5.7 million. Net cash used in
financing activities during the six months ending June 30, 2003 was primarily
attributed to the repurchase of our common stock during the period, which
totaled $14.8 million, partially offset by the receipt of $7.8 million in cash
from the exercise of common stock options, primarily in conjunction with the
sale of 588,000 shares of our common stock in a registered public offering in
March 2003. In addition, in July 2004 the Board of Directors declared a quarterly dividend of
$0.075 per share which will be payable in September 2004. See
further discussion of the quarterly dividend and the effect of this event on
the cash flows from financing activities in Note 10  Subsequent Events to the
condensed consolidated financial statements which can be found in this Form
10-Q under the heading Item 1. Financial Statements. During the six months ended June 30, 2004, we had no material changes,
outside the ordinary course of business, in our non-cancelable contractual
financial obligations. At June 30, 2004 and December 31, 2003, we have no
off-balance sheet financing or other arrangements with unconsolidated entities
or financial partnerships (such as entities often referred to as structured
finance or special purpose entities) established for purposes of facilitating
off-balance sheet financing or other debt arrangements or for other
contractually narrow or limited purposes. Critical Accounting Policies Our accounting policies, which are in compliance with accounting
principles generally accepted in the United States, require us to apply
methodologies, estimates and judgments that have a significant impact on the
results we report in our financial statements. In our annual report on Form
10-K we have discussed those policies that we believe are critical and require
the use of complex judgment in their application. Since the date of that Form
10-K, there have been no material changes to our critical accounting policies
or the methodologies or assumptions applied under them. Item 3. Quantitative and Qualitative Disclosures About Market Risk. We are exposed to interest rate risk primarily through our portfolio of
cash, cash equivalents and marketable securities, which is designed for safety
of principal and liquidity. Cash and cash equivalents consist of highly liquid
U.S. Treasury obligations with maturities of less than three months. Marketable
securities consist primarily of U.S. Treasury notes and bonds and insured
Washington, D.C. tax exempt notes and bonds. We perform periodic evaluations of
the relative credit ratings related to the cash, cash equivalents and
marketable securities. This portfolio is subject to inherent interest rate risk
as investments mature and are reinvested at current market interest rates. We
currently do not use derivative financial instruments to adjust our portfolio
risk or income profile. Item 4. Controls and Procedures. Evaluation of Disclosure Controls and Procedures: The Companys Chief Executive
Officer (CEO) and Chief Financial Officer (CFO) have evaluated the
effectiveness of the Companys disclosure controls and procedures (as such term
is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
of 1934, as amended (the Exchange Act)) as of the end of the period covered
by this quarterly report based on the evaluation of these controls and
procedures required by Rules 13a-15(b) or 15d-15(b) of the Exchange Act. The
Companys management, including the CEO and CFO, does not expect that our
disclosure controls and procedures or our internal control over financial
reporting will prevent all errors and all fraud. A control system, no matter
how well designed and operated, can provide only reasonable, not absolute,
assurance that the control systems objectives will be met. Based on their
evaluation, such officers have concluded that, as of the end of the period
covered by this quarterly report, the Companys disclosure controls and
procedures are effective in alerting them on a timely basis to material
information relating to the Company required to be included in the Companys
periodic filings under the Exchange Act. During the period covered by this
quarterly report, there have been no changes to our internal controls over
financial reporting that have materially affected, or are reasonably likely to
materially affect, our internal controls over financial reporting. 12




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##### 



PART II. OTHER INFORMATION Item 1. Legal Proceedings.  From time to time, we are subject to certain legal proceedings and claims in
the ordinary course of business. We currently are not aware of any such legal
proceedings or claims that we believe will have, individually or in the
aggregate, a material adverse effect on our business, financial condition or
operating results. Item 2. Change in Securities, Use of Proceeds and Issuer Purchases of Equity Securities.  During the three months ended June 30, 2004, we did not purchase any shares of our common stock. Item 3. Defaults Upon Senior Securities.  None. Item 4. Submission of Matters to a Vote of Security Holders.  The Annual Meeting of Stockholders of The Corporate Executive Board Company was held on
July 28, 2004. The following is a tabulation of the voting on the proposals presented at
the Annual Meeting of Stockholders:Proposal No. 1  Election of Directors. The following nominees were elected as directors,
each to serve until the next annual meeting of stockholders or until a successor is named
and qualified: SHARES
    
    SHARESVOTED FOR
    
    WITHHELDJames J. McGonigle
    
    35,174,897
    
    1,013,569Robert C. Hall
    
    34,118,663
    
    2,069,803Nancy J. Karch
    
    35,568,868
    
    619,598David W. Kenny
    
    34,121,508
    
    2,066,958Daniel O. Leemon
    
    34,251,453
    
    1,937,013Thomas L. Monahan III
    
    35,576,634
    
    611,832
  Proposal No. 2  Adoption of 2004 Stock Incentive Plan  The adoption of the 2004 Stock Incentive Plan was ratified SHARES VOTED FOR
    
    24,652,652SHARES VOTED AGAINST
    
    9,165,769SHARES VOTED TO ABSTAIN
    
    12,833
  Proposal No. 3  Ratification of the Appointment of Ernst & Young LLP as independent
auditors for the year ending December 31, 2004  The appointment of Ernst & Young LLP was ratified SHARES VOTED FOR
    
    34,545,910SHARES VOTED AGAINST
    
    1,635,711SHARES VOTED TO ABSTAIN
    
    6,845
 Item 5. Other Information.  None. 13




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##### 



Item 6. Exhibits and Reports on Form 8-K  (a) Exhibits: Exhibit No.
    
    Description31.1
    
    Certification of the Chief Executive
Officer pursuant to Rule 13a  14(a) of
the Securities Exchange Act of 1934.31.2
    
    Certification of the Chief Financial Officer pursuant to Rule
13a  14(a) of the Securities Exchange Act of 1934.32.1
    
    Certification pursuant to 18 U.S.C. Section 1350.
  (b) Reports on Form 8-K:  (i)
    
    On May 4, 2004, the Company furnished a Current Report on Form 8-K,
which included a press release, dated April 28, 2004, in which the
Company announced and commented on its financial results for the first
quarter of 2004 and provided a financial outlook for fiscal 2004.(ii)
    
    On May 5, 2004, the Company furnished a Current Report on Form 8-K,
which included an underwriting agreement, dated May 4, 2004, entered
into by the Company and certain of its stockholders for the sale by the
stockholders of 1,939,113 shares of the registrants common stock, par
value $0.01 per share, in a registered public offering.(iii)
    
    On May 5, 2004, the Company furnished a Current Report on Form
8-K/A, which included an underwriting agreement, dated May 4, 2004,
entered into by the Company and certain of its stockholders for the sale
by the stockholders of 1,939,113 shares of the registrants common
stock, par value $0.01 per share, in a registered public offering.(iv)
    
    On May 17, 2004, the Company furnished a Current Report on Form 8-K,
which included a press release, dated May 13, 2004, in which the Company
announced that it has resolved the sales and use tax refund denial with
The Office of Tax and Revenue of the Government of the District of
Columbia. 14




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##### 



SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. Date: July 29, 2004 The Corporate Executive Board Company By:
    
    /s/ Timothy R. YostTimothy R. Yost
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
 15